Managerial Accounting Class 2020/2021

Practice questions on Chapter 1

1-A1 Scorekeeping, Attention Directing, and Problem Solving

For each of the following activities, identify the primary function that the
accountant is performing—scorekeeping, attention directing, or problem
solving—and explain why it best fits that category.

1. Preparing a schedule of depreciation for forklift trucks in the receiving department

of a General Electric factory in Scotland
2. Analyzing, for a Sony production superintendent, the impact on costs of purchasing
some new assembly equipment
3. Preparing a scrap report for the finishing department of a Toyota parts factory
4. Interpreting why the Colville Timber Resource Company did not adhere to its
production schedule
5. Explaining the stamping department’s performance report
6. Preparing a monthly statement of European sales for the Ford Motor Company’s
vice president of marketing
7. Preparing, for the manager of production control of a Mittal Steel plant, a cost
comparison of two computerized manufacturing control systems
8. Interpreting variances on the performance report for the University of Michigan’s
purchasing department.
9. Analyzing, for an Airbus manufacturing manager, the desirability of having some
parts for the A380 airplane made in Korea
10. Preparing the budget for the dermatology department of Providence Hospital

Solution
Information is often useful for more than one function, so the following classifications
for each activity are not definitive but serve as a starting point for discussion:

1. Scorekeeping. A depreciation schedule is used in preparing financial

statements to report the results of activities.
2. Problem solving. Helps a manager assess the impact of a purchase decision.
3. Scorekeeping. Reports on the results of an operation. Could also be attention
directing if scrap is an area that might require management attention.
4. Attention directing. Focuses attention on areas that need attention.
5. Attention directing. Helps managers learn about the information contained
in a performance report.
6. Scorekeeping. The statement reports what has happened. Could also be
attention directing if the report highlights a problem or issue.
7. Problem solving. Assuming the cost comparison is to help the manager
decide between two alternatives, this is problem solving.
8. Attention directing. Variances point out areas where results differ from
expectations. Interpreting them directs attention to possible causes of the
differences.

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Managerial Accounting Class 2020/2021

9. Problem solving. Aids a decision about where to make parts.

10. Attention directing and problem solving. Budgeting involves making
decisions about planned activities -- hence, aiding problem solving. Budgets
also direct attention to areas of opportunity or concern -- hence, directing
attention. Reporting against the budget also has a scorekeeping dimension.

1. Budgeted Actual Deviations

Amounts Amounts or Variances

Room rental $ 170 $ 170 $ 0

Food 660 875 215U
Entertainment 570 570 0
Decorations 210 270 60U
Total $1,610 $1,885 $275U

2.Because of the management by exception rule, room rental and entertainment require no
explanation. The actual expenditure for food exceeded the budget by $215. Of this $215,
$132 is explained by attendance of 16 persons more than budgeted (the budget of $660/80 =
$8.25 per person for food and 16 x $8.25 = $132) and the remaining $83 ($215 – $132) is
explained by expenditures above $8.25 per person.

Actual expenditures for decorations were $60 more than the budget. The decorations
committee should be asked for an explanation of the excess expenditures.

True or False:
1. The primary purpose of accounting information is to help managers make
decisions.

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Managerial Accounting Class 2020/2021

2. Financial accounting reporting is usually for a time period of a year or less.

3. A manager using information to decide whether to add or drop a product is an
example of problem solving.
4. Variances are deviations from plans.
5. Management by exception is the practice of concentrating on areas that
deviate from the plan and ignoring areas that are presumed to be running
smoothly.
6. Feedback is usually not important in controlling.
7. Setting objectives deals with controlling.
8. A budget is a qualitative expression of a plan of action.
9. Performance reports are the main device for disciplining management
planning.
10. A budget uses predicted or estimated revenues and costs.

Answer:

1 2 3 4 5 6 7 8 9 10
True True True True True False False False False True

MCQ:
1. _____ refers to accounting information developed for managers within an
organization.
a. Internal auditing
b. Managerial accounting
c. Financial accounting
d. Tax accounting
2. The primary users of management accounting information are _____.
a. Bankers
b. Governmental regulatory authorities
c. Internal decision makers
d. Suppliers
3. ________ is the classification, accumulation, and reporting of data that
help users understand and evaluate organizational performance.
a. Scorekeeping
b. Attention directing
c. Problem solving
d. Performance.

4. ________ involves an analysis of alternative courses of action and the

identification of the best course of action to follow.
a. Scorekeeping

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Managerial Accounting Class 2020/2021

b. Attention directing
c. Problem solving
d. None of these answers is correct.
5. ________ information helps managers focus on operating problems,
imperfections, inefficiencies and opportunities.
a. Scorekeeping
b. Attention directing
c. Problem solving
d. None of these answers is correct.
6. A clerk records a transaction in the accounting system. This activity would
be classified as _____.
a. Problem solving
b. Scorekeeping
c. Planning
d. Attention directing
7. Which scorecard function is associated with planning and control?
a. Scorekeeping
b. Attention directing
c. Problem solving
d. None of these answers is correct.
8. A company is unsure whether it is more cost efficient to make or buy a
component used in a manufactured product that is mass produced. What
type of information is needed to make this decision?
a. Scorekeeping
b. Attention directing
c. Problem solving
d. Performance.

1 2 3 4 5 6 7 8
b C a c b d B c

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